Court permits belated substitution of defendant professionals

Published 14 December 2020

The decision in Powis Street Estates (No 3) Ltd v (1) Wallace LLP (2) Cradick Retail LLP [2020] EWHC 1692 is a reminder of the risks to solicitors in the correct identification of parties to litigation, particularly when limitation issues arise. The case saw the High Court use its discretion under the Limitation Act 1980 s.35(6)(a) and CPR r.19.5(3)(a) to grant an application allowing the Claimant to substitute a mistakenly named defendant after the expiry of the limitation period. The court found that the Claimant’s solicitors had mistakenly issued proceedings for negligence and breach of contract against an LLP that had been incorporated after the alleged breaches, believing the LLP to be the entity that provided the negligent services. The court found that the mistake fell within Limitation Act 1980 s.35(6)(a) and CPR r.19.5(3)(a) and that it accorded with the overriding objective for the Court to use their discretion to grant the Claimant’s application.

The Claimant retained property agents, Cradick Retail (the “Partnership”), to deal with the negotiation and sale of two properties. On the eve of the expiry of the limitation period, the Claimant mistakenly issued a claim for negligence and breach of contract against Cradick Retail LLP (the “LLP”), the correct defendant being the Partnership. The mistake was discovered after the expiry of the limitation period and the Claimant sought permission from the court to amend the Particulars of Claim to substitute the LLP for the Partnership as the correct defendant.

The court asked itself the following questions, in accordance with the established test:

1. Was the relevant limitation period current when the claim was issued?
2. Was the substitution “necessary” because:
3. the original defendant was named by mistake; or
4. the claim cannot be maintained without joining the substitute party?
5. If the substitution is necessary, should the court exercise its discretion to permit the amendment?
6. If it is not necessary, the Court has no discretion and must refuse permission.

The court examined the Particulars of Claim, pre-action correspondence and witness evidence before concluding that the Claimant pursued the LLP in the mistaken belief that it was the LLP and not the Partnership who had provided the services that were the subject of the claim and as a result s.35(6)(a) applied, affording the court the discretion to grant the application.

Referring to Insight Group Ltd v Kingston Smith (a Firm) [2012] EWHC 3644 the court emphasised that the discretion to permit the substitution should be exercised in accordance with the overriding objective. In deciding to allow the application, the court considered (i) the Claimant’s alleged delay in submitting the application for substitution, (ii) the potential prejudice to the other defendant in the matter, (iii) the financial standing of the partnership, (iv) prejudice to the Claimant if the application were not allowed, and (v) the fact that the partnership had been aware of the claim since 2015 and had the same legal team and insurers as the LLP.

This case acts as an important reminder that even if a qualifying mistake has been made under the Limitation Act 1980, the court has discretion as to whether or not to grant the amendment. In considering whether to exercise the discretion, the court will consider a range of factors relevant to the operation of the overriding objective. Solicitors acting for Claimants should consider the identification of defendants very carefully, particularly where proceedings are issued on the cusp of the limitation period, and where negligence could result in significant loss. Solicitors acting for Defendants should note the consistent approach of the court on these issues; opposition to an application to amend in such circumstances will be considered carefully where any claim against the correct target would be time-barred.